Budget deficit not a surprise: RBA boss

Colin Brinsden, AAP Economics Correspondent

Central bank governor Glenn Stevens is not surprised the federal budget will remain in deficit this financial year, but doubts this will have an impact on interest-rate settings.

But the Reserve Bank of Australia (RBA) boss says any rate decisions his board will need to take more generally will not be delayed because of the unusually long run-up to the federal election.

In his first appearance before a parliamentary committee since Treasurer Wayne Swan conceded defeat on bringing in a budget surplus in 2012/13, Mr Stevens said returning to the black was always going to be difficult to achieve.

"We found it more surprising to do a number of drastic things over the space of a very small number of months in order to meet the commitment," he told the house economics committee hearing in Canberra on Friday.

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"Is it a surplus this year or next year is not a question of major importance in all honesty. The medium term is the important bit."

Mr Swan said in December that a surplus was "unlikely" owing to a further hit to revenues.

In the October mid-year budget review, the government had forecast a $1.1 billion surplus after a $43.7 billion deficit in 2011/12.

On Friday the treasurer told a conference that the surplus was now "delayed", but refused to say whether one would be achieved in 2013/14.

"I'll reveal the future pathway back to surplus in the budget forecasts, which are produced in May," he told reporters after his speech in Sydney.

Mr Stevens told the six-monthly hearing that when there is a shift in the budget position, the RBA has to consider whether it was because the government had decided to deliver a tax cut or increase spending that has caused the need to run a deficit.

"If they are running a larger deficit or smaller surplus because the economy is weaker ... that's telling you a different message about the economy," Mr Stevens said.

"The other one is telling you the economy is going to be stronger."

The three-hour grilling discovered there was some conflict over the treasurer demanding a $500 million dividend from the RBA for 2011/12.

Mr Stevens wanted to retain all of the bank's $1.1 billion earnings that year for the reserve pool, which has been depleted by the effects of a rising dollar.

"I believe the prudent and best course is to rebuild that reserve as quickly as we can but I am not subject to the other pressures that the government is," he said.

"They have a range of prudent considerations they have to make that extend far more broadly than the Reserve Bank and that is the treasurer's prerogative."

Mr Stevens' opening statement reiterated that the central bank has scope to cut the cash rate should the economy need it.

He said his board will be carrying out its job every month as usual in what is an unusually long run-up to the September 14 election.

"We'll continue to meet, and if interest rates need to be changed, then they have to be changed," Mr Stevens said.

The RBA board took the unprecedented decision during the 2007 election campaign to lift the cash rate.